GOING WHERE OPPORTUNITY KNOCKS

Facing finite home market, no-frills stores seek growth abroad

by Miwa Murphy

NEW YORK (Kyodo) During the recession that plagued Japan in the 1990s, ¥100 shops and other no-frills stores became magnets for penny-pinching consumers and despite the lean times reported stunning growth.

Among notable examples are Daiso-Sangyo Co., Japan’s top ¥100 shop chain, Fast Retailing Co., known for its Uniqlo brand clothing, and Ryohin Keikaku Co., which offers Muji brand products that have generated a cult following.

In recent years, these companies touting basic “value for money” products have expanded their operations to the United States and other foreign markets, although they are likely to face tough competition as they increase their overseas presence.

“In Japan, the consumer market is shrinking because of the falling birthrate. Expanding their operations to overseas markets with more purchasing power, such as the United States and China, is a means of survival, along with efforts to internationalize their internal structures,” said Shigeharu Miyahira, a professor of economics at Meio University in Okinawa.

“One of the hallmark characteristics of these companies is that they are extremely efficient,” he said. “Having grown during the recession, they have thoroughly streamlined their operations.”

In mid-November, Ryohin Keikaku opened its first U.S. outlet in New York’s Soho district, where Uniqlo opened its global flagship store about a year earlier. The area is already home to an outlet of H&M, the Swedish retailer that swept the world with its “cheap chic” clothing, and a number of other competitors.

Masanobu Furuta, senior managing director at Ryohin Keikaku, recently said the company is planning to open 40 to 50 outlets in the U.S. over a five-year period and is aiming to post annual sales of about ¥10 billion to ¥15 billion.

Muji, whose name stands for “no-name brand,” has been increasing its competitive edge by shedding waste in production, packaging and advertising, industry analysts said.

“I’m not saying ads are wasteful, but part of their function is to make things look better than they actually are,” Furuta said. “We won’t spend as much on ads but will pass on the savings to consumers.”

He said the company plans to design and manufacture products in North America in the future because importing products from countries outside the North American Free Trade Agreement is costly.

“Right now, our products are inspired by the Japanese lifestyle, but I believe we can manufacture Muji products that are more suited to the needs of different countries as long as they are consistent with our no-waste philosophy,” Furuta said.

These no-frills companies typically produce the bulk of their items in China and other low-wage countries. But rising wages, the relative weakening of the dollar versus the Chinese yuan and high crude oil prices are among the factors likely to impede their overseas expansion.

Takumi Takeda, an associate professor of economics at Meiji University in Tokyo, said Japanese no-frills stores could be successful in the U.S. despite the tough business conditions because there is considerable demand for affordable quality products in cities like New York, which have large income disparities and a constant flow of immigrants.

Takeda, a visiting scholar at Columbia University in New York from 2005 to 2007, said the retailers will do all they can to overcome the difficulties facing them and will meet demand by shifting production bases to lower-wage areas and by developing alternative materials.

Japanese no-frills stores entering the U.S. face tough competition from local rivals that have been around for years, including Old Navy, a Gap Inc.-owned affordable clothing store, and Conway, according to Takeda.

He said Uniqlo and Muji were initially considered groundbreaking in Japan because they were among the first Japanese companies to establish production systems for low-priced quality items.

“This is clearly a far-fetched comparison, but these stores are providing, or trying to provide, a luxury feel and high quality at lower cost, just as Toyota Motor Corp. delivered the qualities of Mercedes-Benz through its Lexus cars,” he said. “How long they maintain a reputation like Lexus will be key to their success.”

While in Japan both Uniqlo and Muji are no longer seen as fresh, having become ubiquitous, they are still viewed as novel in the United States. In a recent article, The New York Times described Muji as “the merchandise of seven superstores compressed into a bright, boxy Japanese everything mart.”

“I think it’s really wonderful how simple and basic everything is,” said Mitchell Owens, executive editor at Elle Decor magazine, on a recent visit to a Muji store.

“There are so many over-designed things and so many colors in the world. It’s nice to be able to choose something that’s just simple and easy and that has real integrity in the designs. . . . Very beautiful.”